Repligen Corporation (RGEN) Earnings Call Transcript & Summary

Great. Awesome. Thank you, everyone, for joining. For those of you who don't know me, I'm Daniel Markowitz. I cover the life science tools and diagnostics at Medtech space here at Evercore ISI. Today we're joined by Repligen. We have with us CFO, Jason Garland; and from Investor Relations, Steven Chehames. So thank you both for joining.

Thanks for having us.

Hi, everyone.

Awesome. So lots to get into here. I would love to just start off on 3Q performance. So I think you guys delivered 18% organic growth, double-digit growth across every franchise. Can you just talk about some of the drivers of this performance? Were there any standout products or customer categories to call out?

Yes. We were really happy with the quarter. Again, just the continued momentum that we've seen through the year. As you said, it was really strength across all the franchises. When we look at our customer segments, whether it's pharma, CDMO, all strong, even saw emerging biotech kind of have so growth for the quarter, which is really the first time we had seen. So looking forward to seeing that trend continue as well. From a franchise standout, really two things I'd share. Proteins did very well. So again, we're coming off, I'll say, a better comp from '24, but we've seen a lot of good growth across the Protein segment and saw that in 3Q. And then the second thing I'd highlight is our Analytics business. So -- and this is -- we've talked about -- if you go back, our analytics business, it has the CTech acquisition we did years ago, and then it now also includes the 908 devices that we add to the portfolio. But for the legacy CTech analytics, we have two products generally, the in-line and then the at-line. So the in-line is for continuous monitoring, our FlowVPX and then the at-line is we've had our SoloVPE, which again, you have to take a sample and then measure outside the flow. That product was several years old, probably even 10 years, and we launched an upgrade in -- early in the year. And so we've seen really good momentum on that upgrade cycle. Good news is that we're in early days on that. We've got an installed base that's probably north of 2,000 units in the field. And year-to-date, we've probably upgraded only 3% of that. So -- but again, saw some good growth in the quarter and through the year as a result of that. And again, excited about how that continues to grow going forward.

Great. You called out emerging biotech, and I think the language around that was highest level in the past three years. Can you just describe what you're seeing in that end market, your outlook? And is this mostly the macro improving, or is this Repligen-specific share gains?

Yes. I mean it's hard to kind of to dissect that entirely. I think it's probably a little bit of both. At the macro level, I think everyone probably sees the same data that we get, but we've started to see funding pick back up, right? So we certainly had that in October in the third quarter, continued at least year-over-year growth in November. So that becomes the earliest indicator for that segment in particular. There's certainly going to be a lag, right, probably 6 to 9 months from when funding starts to pick back up and then when it might actually translate to orders and sales. But yes, I mean, we're optimistic. I mean, honestly, it's a data point of one. So we need to see if there's that continued trend of growth for that space. But we feel like we have a good offering, both the products as well as the scale and size of the products to fit that market and -- as well as just our commercial outreach. So we're excited to see that -- maybe turn around here.

Yes. Let's hope. And then on equipment, been growing pretty meaningfully above peers for several quarters in a row now. Is this entirely driven by ATF? Or is this more broad-based across your equipment portfolio, or anything else to call out in terms of what's driven the delta between you and peers?

Yes. So it's a good question. I'd bucket the biggest part of our hardware sales or equipment sales would be between three pieces. It's the ATF as you mentioned, the hardware controllers that we sell. The second is the analytics piece that I just described. And then the third would be the more traditional downstream filtration systems. So that's kind of the three pieces. I do think that what we're seeing in our downstream filtration side is probably more in line with what the industry and the peers have been talking about, a little softer overall. And then we've been able to more than compensate that with both our ATF strength, as you mentioned, as well as the analytics dynamic on the upgrade cycle that I just talked about. I'll just note one more thing on the ATF. There's a dynamic here where in environments or where there might be uncertainty or questions about, okay, where do we invest capacity that might drag some of that overall equipment spending down, right? And we think that's probably that overall market dynamic. But ATF kind of has its own cycle. In fact, oftentimes investing in ATF will reduce your overall CapEx spend because you can defer or even prevent the need for capacity expansion because you're able to intensify and get more output faster. And so my point is it's just a different economic decision and cycle on the ATF. And we think that, that certainly has been a part of that growth, just again, as well as the adoption and penetration of ATF overall.

Got it. And if I try to parse out the contribution from those two different pieces, the ATF hardware controllers versus analytics, any sense on the size of each of those businesses? I guess within ATF, how much of it is equipment versus consumables?

Can you split that out?

No, we haven't really split that out. I mean, again, the analytics would be the much smaller piece of the three. It's just a smaller ASP for those products. And so really between ATF and the downstream filtration, those would be the biggest parts of the hardware overall.

Got it. Okay. And then if I think about the orders, grew more than 20% year-over-year, and we're up sequentially for the sixth straight quarter. These are all positive trends. How should we be thinking about the relationship between orders and revenues as we move through the fourth quarter and into 2026?

Yes, it's a good question. So first, just note, when we've talked about orders in that 20%, that's on a reported basis. So you've got acquisition orders in there, and you have the benefit of FX. So when you try to compare that 20-ish percent on the orders, versus the organic growth rate on sales, there is that difference. So if you -- we -- and we haven't -- we don't report organic orders, but you get a lot closer to that sales growth rate when you account for those pieces. So that might address just the, "Oh, hey, guys, what you're growing so much at orders, why aren't we seeing that pass through to sales?" There's a little bit of apples and oranges there. Typically, we'll walk into a quarter with probably 2/3 of the sales for that quarter in backlog. So you only then need to capture maybe 1/3 of the remaining piece within the quarter. And so that's why, again, it's those earlier quarters, as you were suggesting that help to drive where does your sales fall through and less about the orders that you get within a given quarter. And most of those orders you get about 1/3 will translate to sales in -- well, in the same quarter, 1/3 in the following quarter. And then the last 1/3 will be somewhere between the quarter after that and maybe you might have some things that play out a little bit longer. So that's why we're actually trying to move away, as you may have heard to on the call, away from disclosing orders growth rate and really just remain focused on sales, and how that's playing out. And certainly, we'll be transparent about trends we see and anything major or material to share as it relates to that trending, but we want to get more focus on the sales line.

Right. Got it. That makes sense.

Public service announcement there.

Definitely. That makes sense. So if I look at your 4Q outlook, I think it implies low double-digit organic when you strip out the headwinds from a gene therapy customer. Can you kind of walk through the assumptions there? So looking at low doubles organic, and that's versus I see 18% organic in 3Q. So I guess, is there conservatism? Or I guess what accounts for kind of the step down?

Yes. I mean, so -- and you say stripping out the -- because certainly, the gene therapy is a piece of that difference. I think the other thing, too, is, frankly, there's just a different comp sort of dynamic fourth quarter versus prior year fourth quarter versus third. And then again, we also talked about just some of the timing of sales that hit in the third quarter. Particularly, we talked about the ATF -- a fairly large ATF hardware delivery, where going into 3Q, we weren't sure if it would ship at the end of September or early October, and it played out to be able to get that to our customer, and they wanting that in the end of 3Q. So some of that's just a little bit of timing, too, across the quarter points. So nothing more to really highlight other than comps and a little bit of timing.

Got it. Okay. Great. And then zooming out to like the longer-term framework, the framework is to grow -- outgrow the market by about 500 basis points. I guess what do you see as the main drivers of that?

Yes. So I mean, it starts with the strong, I'll say, technology and differentiation that we bring, right? So it starts there. Second, I think the thing to keep in mind, to outgrow a market, just I'd say mathematically, there's kind of 2 pieces to it. There's the -- are you taking share, right, from others in there, and that's the way to grow above market. And then the second piece, which is really more of the dynamic for us is we've been creating markets, right? So if you look at the lion's share of our portfolio, ATF, right? There really isn't anyone else selling that. And so every dollar, every point of growth is a growth in the market -- in that market, right, which is, again, by definition, outpacing the rest of the market that it's not a part of. And so ATF is that way, Analytics is that way. I could argue even the prepacked columns doesn't really have a direct competition in what we offer. And so any time that we're getting growth in those areas where we've created the market, that helps us to be accretive to an overall market growth rate. The other piece is our commercial clinical mix is a driver of our ability to kind of outpace market. Certainly, there's an element of where we are in our kind of trajectory as a company. We like to say we're only 10 years young, right? So there's that dynamic of when -- as we started, we've been able to capture and grow as programs go through the clinical phases. And so that allows for a steeper growth rate. Now as you get bigger and bigger, those are smaller numbers, smaller programs. And so the math doesn't help you. But for where we are now and over the next few years, that movement from clinical to commercial and as you make the steps up through the stages is definitely another way that we're able to grow above the market. And then new modalities as well. I know this year, of course, it's a different dynamic, particularly with that one gene therapy program. But we do see in the mid- to long-term that new modality will continue to be a strong growth driver for us, and we are more heavily indexed to that. We're still about 80-plus percent mAbs, but we're with 20-ish or a little less than 20%, that again helps us with our mix of business for growth. And then the last piece I'd say is the commercial side of our execution. We feel like the key account strategy that we've been executing has provided a lot more, I'll say, looks at RFPs, looks at opportunities and this idea of being able to bring a more fulsome portfolio offering to customers. And we've been able to capture some share and get some looks that way. And then the last piece within commercial and overall would be Asia as a region, we feel like we're under-indexed there as well. And so meaning our Asia sales as a percent of our total sales is lower than a lot of the others in the industry. And we feel like that, that's an opportunity for growth for us as well that helps. So kind of put all those pieces together, and that's kind of the algorithm that we're running to grow above market.

Yes. That's a solid amount of drivers. So I think there's been some market noise that maybe new modalities, if that's not going to be quite as strong of an outlook after this customer situation, is the 5% above market growth still intact? It sounds like I'm hearing your message is, yes, still very much intact.

Yes. And I'd just tack on one other piece. I think one other important message that I want everyone to really absorb is we are -- have a much more diverse and broad portfolio than we did 5, 10 years ago. And so again, even just go back to that gene therapy, when we took that out of our outlook, we were able to replace it and in fact, still raise guidance slightly, even absorbing that pressure point, again, meaning that we've got diversity of our products. We've got diversity of customers. We've got diversity of programs within the customers. And so if one thing isn't growing as fast as we might want it to or for a given year, we've got a lot of other ways to get there.

Definitely. Great. With that, the new modalities, it is a relatively distinct growth pillar. What's the rough split of that business between -- when I look at AAV versus mRNA versus cell therapy?

Yes. So we typically run this, call it, once a year, but a directional split, call it, in the mid-50s, we're exposed to gene therapy. This is all as a percent of kind of the new modalities. mRNA is kind of north of, call it, 25% or so, and then the remaining is going to be cell therapy and other. The good thing is we've seen a lot of traction on the cell therapy side. So we're pretty optimistic for that modality, especially with ATF.

Great. If I could just ask one on cell therapy. Is it mostly different programs progressing through the clinic, or is there a commercial ramp? I guess what's driving the strength in cell therapy?

Yes. So ATF, we called out in Q4 of last year, ATF got spec-ed into a cell therapy platform or program. And in the event that, that does become commercial, it certainly can be a pretty meaningful driver for us.

And now it's less on the commercial side.

Correct.

Got it. Got it. Okay. And I guess, broadly within new modalities, how would you describe the demand environment? You mentioned cell therapy is driving good strength. But I guess across mRNA, AAV, what's the general demand environment like?

I mean outside of that one gene therapy program, we haven't seen a lot of change in opportunity or activity. So again, we kind of still see strength across those pieces. Again, we're pretty excited about cell therapy, like you said, but everything really is kind of stable in terms of that overall activity and opportunity base.

Got it. And then on the mRNA side, is there a lot of customer concentration here? Because if I just think about the mRNA therapies that I know of that would be lumpy, it comes down to not too many.

Yes, you're right. I mean that's one area that we've probably got more customer concentration, but still, again, a lot of activity and a lot of opportunity to grow with them.

Got it. And is that mostly clinical or on the commercial side?

I don't know if they split that. [indiscernible] split that one.

Okay. No worries. Next on the AAV customer headwinds, can you just -- for those in the audience, can you just remind us an overview of the disruption to the business and the kind of a quantification of it?

Yes. So we had called out that there had been about $10 million of sales in the first half. We had done $3 billion in July when we had kind of shared this overall dynamic later that month. And then -- and talked about the second half really having de minimis sales. So there have been some things that we had already agreed to ship, and so it still went out. So overall, a pretty meaningful drag. And as we talked about a little bit for -- or it's been out there a little bit that this will remain a headwind for next year as well in 2026 of about 2 points of growth. So I know there's also been a lot of questions or references to us about, hey, that therapy is still ongoing, right? There's still patients, and we recognize that. Our view is that there's probably enough inventory in the system that if things continued, we still wouldn't expect any incremental orders or sales next year. But certainly, if it steady states with that sort of still usage, we might see some in the future. But right now, we're really being, I guess, clean about taking it out. And then if there's anything that comes through, it's upside.

Yes. I think that's the right thing to do. That makes total sense. And I think you already touched on this, but the AAV disruption with that customer, has it bled into any other AAV customer activity or any broader disruption?

No.

Got it. Is that something you're monitoring closely? Or would you have expected to have seen it if there were an impact by now? I guess, how are you thinking about the risk that there could be some change down the road?

Again, we monitor it closely like with any activity. Again, we -- when we provide our guidance, we're balanced on the risks and opportunities that sit within the broader portfolio. I think this one, in particular, had some specific things that certainly, I'm not the expert to talk about, but that I think are outside of the broader sort of application in market. So that's why, again, we still haven't seen much erosion in activity beyond that one.

Great. Great. And then if I think about back to 2026 long-term algorithm, on 2026 framework, I think peers are generally pointing to about high single-digit growth. And if you grow 5 points above that and then take down a 200 basis point headwind from Sarepta, is about 11% to 12% kind of a reasonable starting point for investors to anchor to?

So that's the math that the framework would suggest. I've said it all morning, and we haven't given guidance yet. And -- but that we continue to look at '26 with that lens, right, that we can grow above market on average 500 basis points. We went through a lot of those reasons and growth drivers we have. You backed out the gene therapy impact. And then it's that baseline to your point of, well, what's market. I think, yes, the -- over the last couple of months, we've heard some more positioning around that high single digit, right? That's probably a little different back in the summer. And so that's what we walk into. But what I'll tell you then is, again, when we give guidance in February, it's going to be, here's our view, Repligen's view of our sales and our view for 2026. And it becomes less about, "Oh, I have to start with this variable market." It's here's what we see line of sight to, right? And that's what we'll share.

Got it.

No change in framework and guidance to come.

Yes. And then are there any level -- like high-level headwinds, tailwinds to call out by franchise? Any specific segments you'd expect to be above or below corporate average?

No. I -- again, we'll share some more views of that in February. But at this point in time, we would see that all the franchises are kind of plus or minus around that overall sort of average company growth. So there's certainly some that will look to help us to be growth accretive, but the ones that are on the other side of that aren't far off. So they're all kind of close to that median.

Great. And then if I think longer term, can you talk a little bit about the onshoring opportunity?

Yes. So I know a lot of dialogue about this, and how big the size of the prize is, I think, still remains to be seen. For us, I think we're excited about the opportunity in a couple of different ways. Number one, you got to remember, when a lot of capacity was built the last time or last gen, we just didn't have the portfolio and the presence and the credibility in the industry that we do today. So we're confident that now when new capacity considerations are -- come to play that we'll have a chance to bid, right? And that we'll have a chance to bid participate in those RFPs and demonstrate the value that we can bring. Because we do believe that our products really almost across the board, but holistically help to create efficiencies, help to improve yield, right, ultimately help to reduce costs. And so we do believe that, that will be a lens that anyone is thinking about new CapEx spend or capacity increase will bring, that's one. Two, from a -- the concept of, "Hey, if we're going to onshore in the U.S., the company should strive to include U.S. content." I think we benefit from the fact that 90% of what we sell within the U.S. is made in the U.S. or as a very specific exemption. So again, we feel like we'll be able to fit that as well. So again, I think the quantification of how all this plays out remains to be seen. I think there's always going to be this question of, is it really incremental capacity in the system, or is it just, "Hey, we were going to put it somewhere else, or we're going to put it in the U.S., or we hadn't decided where we were going to put it, but we're going to put it in the U.S." And so -- but we're excited that we're going to be able to participate in a much different way than we did in the past.

Right, right. That was my follow-up. Is the benefit really just a onetime instrument placement, or do you think there could be more to gain from an onshoring opportunity?

I mean we had this discussion this morning, too, with some -- I think we still hold to the view that ultimately, the usage of consumables is going to be driven by the ultimate demand for the drug, right, and the therapies that they're using. So -- and you're back to, okay, if now you have two factories producing that same amount, it's not like you double the consumable use, right? They're going to share that. So I think there is this to your question, the onetime gain or the incremental hardware that comes with it. And I just think the people have to be careful about how they think about the consumables modeling on the other end of that and not get ahead of the overall drug demand.

Right, right. And if I just think about the time line, when and how would you expect this to show up in Repligen results? When would you see orders? When would you see revenues? What's the time line breaking ground? Like what's the time line on all this?

I mean well, first, it depends, are they greenfields, or are they brownfield or expansions, right? Greenfield could be years out. More of the brownfield or expansion opportunities, we might start to see some RFPs in '26, maybe those translate to orders either in the year '27. So I think it plays out over the next couple of years. No real sales to speak of in '26.

Got it. Okay. And then one more on the longer term. The margin target you guys put out for about 30% EBITDA margins by 2030. That implies over 200 basis points a year of margin expansion. What are the drivers that you see on how we get there?

Yes. So I think, hopefully, you'll feel like just like the growth drivers on the top line that we've got several different things that we're running towards. I mean, number one, if you kind of split that between gross margin and the OpEx dynamic, we -- it's probably about 1 point plus that we get kind of each year on the gross margin line. And then the rest of it is going to be driven by getting leverage on OpEx, meaning growing OpEx at a rate lower than the top line. The way we're thinking about this from a trajectory is that probably over the next couple of years, we -- the difference between OpEx and top line growth is probably less. And then as we get out beyond year 3 or 4, 4 or 5, that we start to be able to scale at a different way and get a little bit more leverage. So kind of -- I can't see it on the transcript, but kind of this flatter over the next couple of years and then more steep incline towards that 2030 target. So then you peel back the pieces beyond the OpEx, it's the growth drivers at the gross margin level. Certainly, there's a volume element as we build scale. We still see a path to getting low single-digit price each year. And then at the same time, we'll always be paying our employees a bit more and have some inflation that we have to offset. And then the other big driver then will be generating manufacturing productivity, right? And I would just kind of parse that into two pieces. There's the day-to-day, we call them our RPS projects that we're generating productivity in the factories every day. And then there may be other bigger initiatives, whether it might be site optimization or other, I'll say, more meaningful either product changes or others that can help to then close -- bring more productivity as well. So it's going to be both of those pieces. But I think that the team has been continuing to focus here, and we're building a lot of good muscles on driving that expansion.

Great. And I guess where does capacity utilization stand today? I know there's been some rightsizing over the last few years. But I guess, as a percent of total capacity, what's being utilized? And what was normal if I think back a few years ago?

We still feel like we could probably double the size of the business without really any major, I'll say, four-wall expansion. Certainly, as we continue to grow, there'll be equipment additions for CapEx. As you know, in our industry, clean room space is an important part of the production areas. And so there may be additional clean rooms that need to be built out. But we still feel like we've got a lot of good room. To your point, as we optimize sites, that may change some of that algorithm, but we feel like we've got a lot of good room where it's not, I'll say, really meaningful expansion of four walls over the next 4 to 5 years.

Got it. Yes. I'm just flipping through my model. It looks like 2019 to 2022, incremental gross margins were like right around 60%. So is it fair -- I'm just backing into what gets you to that about 100 basis points plus of margin expansion. It seems like low 60s incremental gross margins. Does that seem like looking back at what it used to be, we should be right around there, maybe a little higher?

Yes. I haven't calculated it that way. I think we've got -- it should be close. I mean, again, we still have -- in addition to the depreciation and the occupancy costs, there's other, I call them like semi-fixed or semi-variable costs that don't necessarily scale at that same level. So -- but in the end, that's probably pretty close.

Great. Next, I wanted to turn over to ATF. I think that's a really attractive part of the story. It's been a really, really good business for you guys. So you called out as a driver of equipment strength. I guess I already asked -- you can only say the exposure to equipment versus consumables. But I guess in terms of how much that mix could shift, is that going to be a material driver of shifting? I assume now it's more so hardware than it's going to settle out in the longer term.

So interesting enough, Q2 of last year was the first time we actually saw consumables outpace capital equipment for ATF. And I think that's just a testament to the actual pull-through that we're starting to see with the installed base that we've had over the last, call it, since we acquired the actual product in 2014.

And when you say outpace, does that mean it was more than half of the mix or the growth rate was higher within consumables?

We didn't break it out, but the dollar value was higher of the consumables and capital equipment.

Got it. Got it. Okay. And with time, is it going to settle out somewhere near where the rest of the portfolio is, where it's like 80-20 type mix?

Yes, I think that's fair. So just the split of the overall revenue from a company perspective is, call it, 70% consumables, 25% capital equipment and then 5% service.

Right. Great. That's super helpful. Okay. And then you've highlighted a long runway for ATF with more than 50 late-stage and commercial programs and mentioned there was another blockbuster placement since 2024. This is obviously a big growth driver in 2024 with over 50% growth. Are there any comments on the growth outlook for 2025 and beyond? Should it remain above corporate average for the foreseeable future?

Yes. So we don't break out specific guidance by product. But just to go back to the 2024 comment. So in 2024, ATF in general grew, call it, 50%. That blockbuster that ATF got spec-ed into in Q3 of last year did not contribute to the growth. So that capital equipment was actually delivered and realized as revenue in Q3 of this year. And so we'll expect consumables pull-through for that program, call it, in the back half of 2026.

Got it. So 3Q this year, the one between September, October, that's the one that was from last year. And then you said consumables probably not until back half of '26?

Correct. So the growth that we saw in ATF in 2024 was primarily driven by the 9 late-stage and commercial processes that got backed into in 2023.

Got it. And I guess, what's the scale of those 9 late-stage ones versus this big blockbuster?

Yes. So we haven't broken it out like that, but just to phrase kind of the opportunity for ATF. And this is for N-1 applications. The economics get a little bit different if you're talking about a perfusion process. But for just a regularly commercially approved drug that ATF gets spec-ed into, the consumables pull-through is probably in that low to mid-7 figures on an annual basis at peak volumes. And then if it's a blockbuster drug similar to the one that we called out in Q3 of last year, the consumables pull-through on an annual basis, again, at peak volumes, assuming ATF is implemented across all their manufacturing sites for that drug could be in the $15 million plus.

Okay. Great. And on the point on the N-1 versus perfusion, I think there's been some sort of investor eyebrows raised because I think we've been told by the bioprocess industry for so many years that there's this dynamic where you get specified in, and then it's hard to break from there. I think it's -- what explains is how you've been able to win that is that it's N-1 applications mostly. I guess, can you talk about the difference between N-1 versus perfusion, and how much of the business is one versus the other in ATF?

Sure. So when we acquired ATF in 2014, it was primarily used at the end stage. What we've noticed is over the years, there's more opportunities in the N-1. I mean 70% of the workflows are done in fed batch and then the remaining being done in perfusion processes. When you're using ATF in the N-1 stage, you're attaching it to the actual seed train bioreactor. And so you're not really changing the process. You're essentially adding a loop to the process. And so if you're not using ATF in the N-1 stage, you might be running your process for, call it, 14 days to get the number of cells that you need for the main bioreactor. By attaching ATF, you're essentially speeding that process up. So instead of running the process for 14 days, you implement ATF at the seed train bioreactor, and you're running your process for, call it, 5 to 6 days, getting to the same cell count that you need in half the time. If you're using ATF in a perfusion process where you're attaching it to the main bioreactor level, it's not necessarily about speed. It's more or less about increasing the actual cell count. So say your original process, and these are hypothetical numbers, say your original process calls for 100,000 cells. Well, if you implement ATF, you can scale that two- to threefold. So you can end up with 200,000 to 300,000 cells in the main bioreactor. The problem is your original process for your downstream was accommodating 100,000 cells at the main bioreactor. So you essentially have to change your entire downstream process if you implement ATF at the main bioreactor because you have 2 to 3x the cell count that you originally had.

Downstream becomes the bottleneck, whereas upstream traditionally.

Right. So there's less of a regulatory hurdle for customers if they're doing it at the N-1 level.

Yes, there's still a process they have to go through. So I think this particular blockbuster drug we got spec-ed into, the customer went through, call it, 8 to 12 months of filings versus starting back at the clinic and having to scale up. And then the reason I said that the economics are a little bit different is if you're using ATF in the N-1, you're probably attaching 2 to 3 single-use ATFs to that seed train. If you're using it in the end stage, you could be attaching as many as 7 to 8 single-use ATF.

Got it. Okay. So is it fair to assume that any already commercial drugs that you win are in the N-1 stage and then perfusion would be only the new things coming to market?

So we do have a couple of customers using ATF at the end stage, but there's more opportunities, and it's more skewed towards N-1 today.

Got it. Great. Next, are you seeing growth in this number of late-stage and commercial programs, mostly from progression through the clinic? Or is it also share gains in the -- I guess, what's the contribution from already commercial versus progressing through the clinic?

For ATF specifically?

Yes, yes.

So we haven't broken that out, but you could assume it's more commercial based.

Okay.

And as we mentioned, ATF is in, call it, north of 50 late-stage and commercial processes today.

Got it. Is there concentration within customers who might roll out ATF in one program and say, this thing is great, let me roll it out in more programs, or is this more broad-based across different customers?

Yes. So we're in, what, 9 out of the top 10 CDMOs. But in most of those cases, they're only -- it's only with one program, right? So there's an opportunity to add programs or the real like -- the real opportunity is you get platform so that whenever you've got a bioprocessing or a reactor for a certain either molecule or process that you're always have ATF spec-ed in. And then on the pharma side, we've been making good inroads there as well, not quite as heavily penetrated, but we've also been fortunate as well to see at times some of the CDMOs have been, I'll say, requesting ATF in order for them to take the production from pharma is to say, "Hey, we'll do this if you allow us to do ATF." So you kind of get some of that support from -- as well, not only us pushing the technology, but CDMOs saying, "Hey, this is how we want to develop it because it's the most efficient for us."

Right. Yes, that was my next question. If you're in 9 of the top 10 CDMOs, I guess the question was how much control do they have over what the workflow looks like versus just being told by the pharma company, here's what I want to...

We're seeing real examples where they're again insisting that for them to take the molecule that they want to -- they need to implement ATF.

Is that because the economics can be better for them?

Absolutely. Well, for everybody, right? It would be better for them, and then that will pass on to pharma.

Yes. No, I mean it sounds very compelling value proposition for everyone. So beyond the programs, I guess, how broad is adoption generally in ATF? How much of a standard is it? And I guess, how penetrated do you think it is in the market today? Is it still less than 10%? How much is the opportunity ahead?

Yes. So from a penetration standpoint, it's hard for us to kind of give you an exact number, but we do think that we are in the early innings, if you will, of ATF. As Jason mentioned, 9 of the top 10 CDMOs are using it in at least one program. We're working on that 10th. The vast majority of large pharma are implementing ATF as well. But if you think about the kind of breakdown, it skews more towards mAbs, but we are seeing adoption of the new modalities. And I think we touched on the cell therapy win that ATF had in Q4 as well.

Great. And with any strong growth driver where there's a nice competitive difference, you get the question on competition. I guess, how would you describe the competitive environment for ATF? It seems like it's kind of in a category of its own today. Is there anything you're monitoring on the horizon in terms of potential competitive entrants here?

So if you think about process intensification, there's two technologies, ATF, which we are the sole provider. And you can also use a TFF process as well. The great news is that we offer that solution too. And so that if you have a producer that says, you know what, we're all in on TFF, then we can provide that as well. And we've had success with being able to sell those solutions. TFF is where there has been discussion of other players coming to market with their version of it that could be used in intensification. So we haven't seen a lot of it yet. We still feel like ATF is the superior technology and that we can continue to lead in that way.

Great. And so we got the high-level framework on '26, which was helpful as an early starting point. Are there any things we should keep in mind on -- in terms of the margins, anything on the OpEx line or gross margins that kind of onetime headwinds, tailwinds we should think about entering '26?

Yes, I think we still see a framework where we can grow gross margins kind of up 1 point plus and then get more leverage at the -- on top of that by growing OpEx less than our top line. I just think that, again, I talked about the trajectory over the next couple of years that there are more fit-for-growth investments that are important for us to make over the next couple of years because, again, the -- and you talked about capacity, physical manufacturing capacity. We also just have the capacity of all of our business processes that we have to, I'll say, strengthen and expand and through whether that's the teams we have, whether that's the processes we use, the systems or technologies we have. And so that's where we're really focused on ensuring that we have robust processes in order to be able to scale and to scale with the increased complexity, right? When we -- the great news about broad and diverse portfolios is we can cover ebbs and flows, but it does add more complexity, and we have to have the right ways to manage that to protect that growth.

Got it. Makes total sense. So I see we have 30 seconds left. In the last 30 seconds, on capital allocation, how are you thinking about capital deployment here between M&A, internal investments, potentially returning capital to shareholders? How are you thinking about those different?

Yes. Our priorities will be the internal investments we've talked about, but -- and then M&A becomes a continued priority for us. We've talked about where would we fill out the portfolio in terms of gaps. So in the traditional mAbs workflow, there's three areas that we don't provide right now, bioreactors, cell culture media and viral filtration. And so we remain open to those opportunities. And then in addition, on the new modality space, and we talked about the way we think about growth there that are there -- that's a different set of workflows and different solutions. So we're also very open to seeing what's available and can fit with the portfolio on that side as well.

Great. With that, I think we're out of time. Thank you both for joining.

Thanks for your time. Thanks, everyone.